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Military Retirement Pay — Fully Exempt

Military retirement pay is exempt from Alabama income tax in full — the Department of Revenue lists it among exempt income outright, with no age gate, cap or election. Survivor benefits derived from that retirement are exempt on the same terms, so a surviving spouse receiving an annuity does not pay state, county or municipal income tax on it either.

Verified August 25, 2026

What this benefit is

Military retirement pay is exempt from Alabama income tax in full — the Department of Revenue lists it among exempt income outright, with no age gate, cap or election. Survivor benefits derived from that retirement are exempt on the same terms, so a surviving spouse receiving an annuity does not pay state, county or municipal income tax on it either.

What it's worth: 100% of military retirement pay — and survivor benefits derived from it — excluded from state income tax

  • The saving is your marginal state rate (top rate 5%) applied to the amount excluded, so it depends on the pension and your other income.
  • Ala. Code 40-18-20 exempts military retirement compensation and survivor benefits derived from it from any state, county or municipal income tax.

Who is entitled to it

  • You receive military retired pay.
  • Your home is in this state.

Not sure whether that describes you?

Answer a few questions about this benefit specifically — we only ask what this one actually depends on, and we stop as soon as we know.

How to claim it

Deadline: With your return
  1. 1Do not include military retirement pay in Alabama gross income — the exemption is a listed exclusion, not a credit you claim.
  2. 2Military allowances for quarters, subsistence, uniforms and travel are exempt too, for active duty, National Guard and active reserves.
  3. 3Compensation for active service in a Presidentially designated combat zone is also exempt.
File with
The state revenue department, on your annual return
Annual
Claimed once a year.
Known gapThe DOR list does not state on its face whether Survivor Benefit Plan annuities paid to a surviving spouse share the exemption. §40-18-20 is reported to reach them, but we have not read that subsection, so survivors should confirm with the department before relying on it.

Sources

Why only one source type: The Department of Revenue's own exempt-income list names military retirement pay, the allowances and combat zone compensation in terms.

This finder provides an informational match, not a government eligibility determination. The responsible agency decides your application.